Derivatives Game in Use

A simulation for a better understanding of exchange-traded financial derivatives

The Derivatives Game teaches students the difference between a purchase today and a sure or possible purchase tomorrow. The modular structure of the game allows for different didactic settings and flexibility within the game. A possible playthrough is shown below:

Necessary Theoretical Background

Prior knowledge in the field of derivatives (e.g., from a fundamental derivatives course) is required in order that players can profit the most from the game setting. A general introduction and Microlearning (e.g., multiple choice questions) within the game help to refresh and recall the knowledge.  The theoretical content within the Microlearning typically includes a general description of the topic as well as a direct link or hint related to the simulation itself.

A main target of the Derivatives Game is to let the students understand and experience the difference between the following markets:

• Spot market: A good is bought or sold today at the currently valid market price.
• Futures market: A good is bought or sold in the future, but the price and the amount of the transaction are set today.
• Options market: An option gives its owner the right, but not the obligation, to buy or sell a specific asset at a specific price. Conversely, the issuer (seller) of the option is obliged to sell or buy the asset at the agreed price if the owner of the option decides to exercise it. The buyer of the option can determine whether the option is exercised.

It is not required that the students are able to conduct price calculations. A basic understanding of the mechanisms is sufficient. Throughout the game, players gain a deeper understanding of the materials.

Target Group

The Derivatives Game is primarily designed for students at university level with courses in the field of Banking and Finance. Often, students are able to conduct specific calculations and answer exam questions. However, when it comes to actually putting the knowledge in the field of derivatives into action, many students struggle according to our experience.

By applying the knowledge in a simulation where the underlying commodity is the somehow tangible good cocoa, players gain a higher level of understanding according to the Learning Objective taxonomy. From remembering, understanding and applying in terms of solving calculations they additionally move to analyzing, evaluating and creating own strategies using the given financial instruments.

Course Design

When applying the Derivatives Game, we recommend playing at least 4 game periods to introduce the game and the different markets. The pace of the periods can be increased over time. Between the game, lectures on theoretical and practice-oriented topics enrich the seminar.